The study reviews Indonesia'srecovery so far, which in spite of only modest growth, istaking hold, and its base has expanded beyond consumption.With inflation under control, real wages are rising again,and poverty declined from a peak of over twenty threepercent. The rapid export growth, and high oil prices werefactors to offset capital outflows, thus, Indonesia'scushion of international reserves increased, lowering thedeficit, and limiting financing needs, which resulted inbank, and corporate emergence. But financial markets weredoubtful of the real economic developments, aggravated bypolitical turmoil, and the developments in East Timor, whichcreated market uncertainty. However, the study reflectsoptimism on the country's agenda, encouraged by theGovernment's program to accelerate recovery, with broaddomestic and international support. The study examinespolicy options for fiscal sustainability, and the role ofdonors, and, assesses poverty within a constructive strategyfor the future, exploring as well governance improvementthrough legal and judiciary reforms, suggesting the rule oflaw is still far from being assured. The study recommendschanges within the political process, and to its legalsystem and civil service, as well as changes from the roleof the military, to the way Government handles its finances.
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